In another thread someone made an offhand remark saying that anyone who had an adjusted gross income higher than $X would certainly have discussed this with their financial advisor. The inference was that someone would be foolish to earn that much money without financial advice.
Well, I make that much money, and more, and I have no financial advisor. I don’t have a far-flung empire, though. No rents, no buying and selling of stocks, no business ownership. 90% of the household income shows up right on my W2. My wife has a small pension, and there’s a couple grand in interest and dividends. I max out my 401k every year, and my wife makes the maximum IRA contribution.
What good would a financial advisor do me? Am I missing out on opportunities?
One thing that jumps out at me is that you max out your 401K. Your particular program will have its own set of idiosyncratic rules, I know, but most programs allow participants to put that money into a variety of internal plans or allow the money to be used for outside investments.
At one time keeping your 401K in company stock was the norm. After many failures, of which Enron was merely the largest and best publicized, wiped out 401K’s the wisdom of spreading the money around became better known. You should think about a balanced set of investments that wouldn’t be so directly affected either by one company or the ups and downs of the stock market.
What’s the best way to do this for your particular case? I have no idea. And that’s why a financial advisor is helpful.
Any legitimate operator would be happy to schedule an appointment with you free of charge and talk about possible options. Of course they will try to sell you on their services. Find out all you can about their fees. You don’t want them to make money every time they sell a stock (known as “churn”) so a flat fee or percentage is better. These vary greatly from fund to fund and firm to firm. You may get more for your money so lower isn’t always better (although it usually is).
Until you have $250,000 or more to play with, there isn’t much anybody can do because splitting smaller sums can go only so far. But it doesn’t take that many years of maxing out for a 401K to grow so starting early so that you’re already properly positioned is a good idea.
If all you can do is move money around inside your own 401K, then you probably don’t need to pay for a financial advisor at all beyond some basic advice. Maybe buy a consulting session if that’s a possibility.
Standard disclaimer: This is all general advice since I don’t know you, your situation, or your funds.
Thanks Exapno Mapcase, I have a small percentage of my 401k in company stock now, less than 5%. I got lucky and picked up a bunch at close to the bottom, 6.25 less than a year ago, but dumped most of it at 22.00 last November. The rest of it is split up in small, mid, and large cap stocks, with 20% or so in foreign stocks and 35% in a bond fund.
I’m limited to the dozen or so funds available, but I’ve done pretty well by rebalancing once a month or so. I could start a self directed account, but that seems like work.
What was the amount? I’m kind of curious as to whether I should have some outside advice. I use a 401(k) adviser, but it’s too soon to tell whether I’ll beat my old habit of just picking through histories. I’m in the upper 90% (which is not at all the same as the upper 95%, thankyouverymuch), so I do wonder if I’m pissing away good opportunities.
We earn more than that and we have no plans to get a financial advisor anytime soon. However, we are pretty well educated on personal finances, and we are pretty secure in the path of saving/investing we’ve chosen.
I suppose I would get help handling our wealth if our wealth ever gets to the point where it starts making sense setting up all kinds of various organizations so that it is never in our names (as is rather common practice with the truly rich, as I’ve heard). Not sure what that cutoff is; I suppose when the wealth’s so great that all these expenses required to do so are a drop in the bucket.
Well, you are almost certainly missing out on some opportunities. The biggest mistake I think people make is to say, “Well, I’m maxing out my 401(k) so therefore there’s nothing else for me to do.” A financial advisor can help you figure out if you’re saving enough to actually retire when you think you will (yes, lots of free online calculators will help you do this), but also help you generally get your goals together and figure out how to pursue them. A really good advisor will listen to your overall life goals and then help you figure out where you need to be financially to do it. If the first question is, “What makes you happy?” instead of, “How much money do you earn?” then you probably have found a good advisor.
You didn’t mention children, but that comes into play, too. I’m currently figuring out how to send two kids to college starting in 5 years.
I don’t want to give you actual financial advice; I’m not qualified, and I don’t really know your situation. But financial advice is one of those things where you don’t know what you don’t know. It wouldn’t hurt to test-drive someone. But I also suggest that person is strictly an advisor. Don’t use someone who will get a commission every time he gets you to make a trade.
One bit of advice I’ve heard is that it may make sense to contribute to the 401(k) only enough to maximize the employer match and then to make subsequent contributions to a Roth IRA (and then if money is still available, to make additional 401(k) contributions).
We use one to help us decide how to structure our 401k choices, both owned and going forward. She also is an excellent resource for staying abreast of changes in legislation that’ll affect IRA contributions, kid’s education funds, predictions on where the market is heading, changes in the tax code, etc.
The problem with “max out your 401k” as an answer is that it’s only half the answer. A 401k has assets allocated to various investments. Pick the wrong investments for your goals/needs and you might as well have spend the money on latte’s. Two extreme examples include putting all of your 401k in cash so that it never even earns interest, and putting all of your 401k money in Enron, so that you can even lose the principal.
And THAT’S where the financial advisor comes in. Any person who fits the following needs a financial advisor:
plans to retire and
can’t explain how to diversify a portfolio and
doesn’t know how risk vs. return varies across major classifications of investments
might panic and be upset if they lose 50% of their assets values in a down market
Frankly, even someone who does know the basics can usually benefit from an expert’s second opinion.